Question

CLOs: 2, 3]

In your initial post, briefly discuss Generally Accepted Accounting Principles or G.A.A.P. What are they? What is their purpose? Name the U.S. and international standard-setting bodies that established these principles. Are all companies required to follow these principles? Why or why not? Your answer should illustrate understanding of generally accepted accounting principles and their international counterpart.

Answer 1

Generally accepted accounting principles are common set of rules, procedures and conventions and provide broad guidelines for accounting practices. GAAP tries to address the objectives of recording, measurement ,disclosure and presentation of monetary transactions and financial statements. GAAP primarily has two principles i.e. the recognition and disclosure principle. The recognition principle deals with the transactions that are accounted for and includes monetary values only. Disclosure principle is the monetary and non monetary aspects of financial statements that enable decision making for the users. Financial Accounting Standards Board (FASB) has developed the US GAAP and the  International Accounting Standards Board (IASB) has developed the International Financial Reporting Standards (IFRS). The US GAAP has to be mandatorily applied by all public companies listed on the stock exchanges in the US whereas IFRS is optional for such companies. IFRS is used by companies that have global operations and are required to prepare as per local GAAP rules in each country. Majority of the countries in the world have converged their local standards with IFRS but have not adopted the IFRS in totality. This due to the fact that IFRS cannot be applied to local economic and accounting practices and a single accounting standards for the whole globe seems impractical.